Emirates NBD Comfortable With State Exposure – CEO

The new chief executive of Emirates NBD said he wasn’t worried about the bank’s exposure to Dubai and state-linked entities, but it would need to wind down some of those positions to comply with new regulations.

Around 38.2 per cent of ENBD’s total lending of Dhs238.3 billion ($64.9 billion) was allocated to the Dubai government at the end of 2013, according to the bank’s latest financial statement, released on Monday. ENBD, the emirate’s largest lender, is 55.6 per cent owned by the state fund Investment Corp of Dubai.

Links to state borrowers have crimped ENBD’s profitability in recent years. It was forced to set aside billions of dirhams to cover loan losses following debt restructurings at entities such as Dubai World and Dubai Group.

That raised questions over the bank’s concentration risk. To prevent the same problem occurring again at lenders in the United Arab Emirates, the country’s central bank outlined new rules last year which would cap the permitted exposure to state-linked entities.

Shayne Nelson, in his first public comments since becoming CEO Jan. 1, said he wasn’t worried about how much cash the bank has committed to state borrowers.

“I’m not uncomfortable with the exposure that we have to Dubai,” Nelson, formerly head of Standard Chartered’s private bank, told reporters on a conference call. “However, with the new central bank legislation that’s on the way around exposures, we will need to wind some of that down over the next five years until we get to the required ratios.”

Asked whether reductions would include selling loans or not renewing existing exposure, Nelson said he couldn’t talk about how the bank would deal with a specific client.

Dubai was hit by a real estate crash and debt crises at state-linked entities at the end of the last decade. The economy rebounded last year, with the value of the stock market doubling and house prices growing at one of the fastest rates globally.

ENBD is expecting 2014 loan growth of around seven to eight per cent, finance chief Surya Subramanian said on the call. That is above the six to seven per cent forecast for the year in October but below the nine per cent recorded in 2013.

However, ENBD is not expected to seek further acquisitions until it finishes integrating BNP Paribas’ Egyptian assets, which it bought last year, Nelson said. The integration will take until mid-2015, he said.

The bank, like most larger Gulf lenders, has been looking to expand to find sources of revenue outside the highly competitive local markets.

PROVISIONS SPIKE

The improving economic picture helped boost net interest income, but a 40 per cent jump in impairment allowances meant ENBD’s fourth-quarter net profit fell short of forecasts, rising just eight per cent.

The bank made Dhs673 million in the three months to Dec. 31, a statement from the bank said, compared with Dhs626 million in the same period last year. An average of five analysts polled by Reuters had forecast a net profit of Dhs705.9 million.

Fuelling the profit growth was a 26 per cent increase in net interest income versus the same period a year before, which the bank attributed to higher lending growth and lower funding costs. But impairments rose to Dhs1.31 billion year-on-year, as the bank took provisions and built up its coverage ratios.

ENBD’s share price slipped 2.1 per cent on Monday, part of a widespread decline that saw the Dubai bourse finish 1.2 per cent lower.